In Budget 2016, which received Royal Assent on December 15, 2016, Liberal government announced Canada Pension Plan (CPP) Enhancement to help working Canadian to receive more CPP in their retirement years. On one hand, such enhancement will allow eligible retired Canadians to receive more retirement pensions. On the other hand, the contribution to the plan from employers, employees and self-employed persons will increase to fund the plan.
Currently, the CPP retirement benefit replaces a maximum of 25 % of earnings up to the maximum pensionable earnings. Quite often the receivers don’t get the full benefit due to other factors involved in the calculation of benefits. The amount is indexed to average wage growth annually.
With the new plan, the CPP retirement benefit replaces a maximum of 1/3 of eligible earnings and it’s fully indexed to prices to reduce the inflation risk. The contribution rates will gradually be increased from 9.9% of gross earnings (4.95% from employee and 4.95% from employer) up to the maximum of 17.9% of gross earnings depending on earning levels. The transition will start on January 1, 2019 and will be completed in 2025.
Canada Pension Plan Enhancement
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Note: All information relating to CPP Enhancement above is available from Government of Canada website.
By Theresa Lo, CPA, CGA
February 7, 2017
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